A variety of issues related to the T1135 form


An article by Rotfleisch & Samulovitch P.C. (Canadian Tax Law Firm Complete Guide To CRA T1135 Forms, by David Rotfleisch) discussed a variety of issues related to the T1135 form, including the following:

  Specified foreign property (SFP; defined in Subsection 233.3(1)) may  include  copyrights  and  patents,  insurance  policies, precious metals and futures contracts, in addition to assets more commonly considered.

  Shares  of  a  Canadian  corporation  listed  on  a  foreign  stock exchange, paying dividends in a foreign currency, are not SFP.

  Shares of a  Canadian corporation  held in a  foreign brokerage account are SFP.

  Shares  of  a  foreign  corporation  listed  on  a  Canadian  stock exchange are SFP.

  The cost amount of depreciable property changes over time.

  American  Depository  Receipts  (ADRs)  trade  in the U.S. but represent  shares  of  non-U.S.  corporations,  making determination of the country to disclose challenging.

The article also discussed property not required to be reported, filling out the form, filing deadlines, and penalties for failure to file and for errors.


In a May 15, 2017 French  Technical Interpretation  (2016-0645891E5, Grégoire, Sylvain), CRA opined that they do not generally consider health services  provided  to  the  general  public  to  constitute  services  to  the government.  As  such,  a  retirement  pension  received  under  a  Swiss canton’s pension plan, in respect of nursing services provided to the general public, would  not be exempt  under the Canada-Switzerland Tax Treaty.

Comments- Although  the  specific  question  related  to  the  Income  Tax  Treaty  with Switzerland, many Treaties provide special exemptions for income derived from  services  to  one  of  the  two  nations’  governments  (including  the Treaties  with  the  United  States  (Article  XIX)  and  the  United  Kingdom (Article 18), and the Model Convention of the Organisation for Economic Co-operation and Development (OECD; Article 19)).


In a June 20, 2017 Supreme Court of British Columbia case (Scotia Mortgage Corporation vs. Gladu, Docket H22861, 2017 BCSC 1182), the holder  of  a  mortgage  on  Canadian  real  estate  owned  by  a  nonresident  asked  the  Court  to  declare  that  the  purchasers  of  three foreclosed  properties  did  not  acquire  the  properties  from  a  nonresident person.  The case indicates this was for purposes of Section 116 of the Income Tax Act.

The  Court  held  that  it  was  effectively  being  asked  to  rule  that  the purchasers  were not required  to  withhold and remit  a portion of the purchase price (25% of proceeds  by default) in accordance with Section 116,  as  is  normally  required  where  Canadian  real  estate  is  purchased from a non-resident. Jurisdiction over income tax matters rests with the  Tax Court of Canada.  The Court held that it lacked jurisdiction  to rule in this matter or, to the extent it had jurisdiction, declined to rule in favour of the Tax Court.


Presumably,  neither  the  purchasers  of  the  property  nor  the  mortgage holders wanted to be at risk of a later assessment for taxes which should have been withheld.  An Advance Tax Ruling  might be considered for such a situation.


In  the August edition of Canadian Tax Highlights (No Tax on Sale of US LP Units, Thomas W. Nelson, Hodgson Russ LLP, Buffalo), the U.S. taxationon  the  disposition  of  an  interest  in  a  LP  by  a  foreign  entity  was discussed  in  the  context  of  a  recent  U.S.  Tax  Court  case  (Grecian Magnesite Mining, Industrial & Shipping Co., SA v. Commissioner, July 13, 2017).

The U.S. Tax Court determined that such dispositions should be treated on an entity basis (the sale of a single asset, being the LP interest) rather than an underlying asset basis (the sale of the LP’s assets). In addition, the Court opined that the gains on such a sale constituted non-effectively connected income (which is exempt from U.S. tax).

In other words, the Court found that the gains  from the disposition of an interest in an LP by a foreign entity would be exempt from U.S. taxation.

This  decision  is  contrary  to  the  IRS’  long-standing position  (Revenue  Ruling  91-32)  which  held  the contrary.  The  article  noted,  however,  that  such precedence may not be applicable where a significant amount of the partnership’s assets include real property (where  the  Foreign  Investment  in  Real Property  Tax Act,  FIRPTA,  regulations  override  the  non-tax treatment). The author of the above article noted that this case is likely to be appealed.


For  calendar  year  partnerships,  the  due  date  for  filing  the partnership’s tax return to the IRS in 2016 was changed to March 15from April 15.  Many partnerships filed their returns by the former April 15 deadline and, if not for the change, would have filed their returns on time.Due to the change, they were late.

On September 1, 2017, the IRS released IR-2017-141 which provided relief  for these partnerships  where, essentially, the returns were filed with the IRS and furnished copies provided to the recipients by the date that would have been timely in prior years (April 15), or a request for an extension of time was filed by the April 15thdate.  Taxpayers who qualified for  this  relief  will  not  be  considered  to  have  received  a  first -time abatement under IRS’s administrative penalty waiver program.

Partnerships that have already been assessed a penalty but qualify for relief should be receiving a letter in the coming months notifying them of the relief.


An article in the August edition of Canadian Tax Highlights (US Citizens Living in Canada: Foreign-Currency Gain, Roy Berg of Moody’s LLP and  Alexey Manasuev of US Tax IQ) reminded practitioners that, while the gain on a principal residence by a Canadian resident may be exempt from tax, other tax consequences may exist for U.S. taxpayers.

The U.S. allows an individual to exclude up to US$250,000 from the sale or  exchange  of  their  principal  residence  from  gross  income.  Gains  in excess of this may be subject to U.S. tax.

Also, foreign currency exchange gains or losses on the disposition of  the  property,  as  well  as  the  mortgage  repayment,  must  be considered.  For  example,  consider  a  property  that  was  acquired  for CAD$1 million when the Canadian and U.S. dollar were at par but sold for CAD$1.1 million when the Canadian dollar had weakened to $0.75 on the U.S. dollar. A CAD$800,000 mortgage is acquired on the property.

For U.S. tax purposes, a capital loss of $175,000 (($1.1M x 0.75) –  ($1M x  1))  is  experienced.  The  repayment  of  the  mortgage  is  subject  to  a $200,000 foreign exchange gain (($800,000 x 1) – ($800,000 x 0.75)).While  the  taxpayer  is  not  subject  to  tax  on  the  sale  (due  to  the  loss position), they are  subject to tax on the foreign exchange gain on the mortgage repayment.

With the weakening in the value of the Canadian dollar against the U.S. dollar, a  U.S. citizen selling his residence  in Canada may experience a large U.S. loss.